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Is there an optimal size for local governments? A spatial panel data model approach

Author

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  • Miriam Hortas-Rico
  • Vicente Ríos

Abstract

The paper presents a framework for determining the optimal size of local jurisdictions. To that aim, we first develop a theoretical model of cost eficiency that takes into account spatial interactions and spillover effects among neighbouring jurisdictions. The model solution leads to a Spatial Durbin panel data specification of local spending as a non-linear function of population size. The model is tested using local data over the 2003-2011 period for two aggregate (total and current) and four disaggregate measures of spending. The empirical findings suggest a U-shaped relationship between population size and the costs of providing public services that varies depending on (i) the public service provided and (ii) the geographical heterogeneity of the territory.

Suggested Citation

  • Miriam Hortas-Rico & Vicente Ríos, 2018. "Is there an optimal size for local governments? A spatial panel data model approach," Working Papers. Collection A: Public economics, governance and decentralization 1809, Universidade de Vigo, GEN - Governance and Economics research Network.
  • Handle: RePEc:gov:wpaper:1809
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    File URL: http://infogen.webs.uvigo.es/WP/WP1809.pdf
    File Function: First version, 2018
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    References listed on IDEAS

    as
    1. Mika Tujula & Guido Wolswijk, 2007. "Budget balances in OECD countries: what makes them change?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, pages 1-14.
    2. Altar, Moisa & Necula, Ciprian & Bobeica, Gabriel, 2010. "Estimating The Cyclically Adjusted Budget Balance For The Romanian Economy. A Robust Approach," Journal for Economic Forecasting, Institute for Economic Forecasting, pages 79-99.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Optimal Government Size; Spatial Panels; Spanish Municipalities.;

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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